EMS Technologies, Inc. Q2 2010 Earnings Call Transcript

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 |  About: EMS Technologies, Inc. (ELMG)
by: SA Transcripts

Operator

Good day ladies and gentlemen, and welcome to EMS Technologies second quarter 2010 earnings release call. All lines have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. (Operator instructions) At this time, it is my pleasure to turn the floor over to your host, President and CEO of EMS Technologies, Neil Mackay. Sir, the floor is yours.

Neil Mackay

Thank you, Anthony. I thank you all for joining us on this EMS second quarter earnings call. I am Neil Mackay, as Anthony said, and the company’s Chief Executive Officer, and joining me on the call today is Gary Shell, our Chief Financial Officer.

But before we go further, any statements made during the course of this call regarding product expectations, program opportunities and schedules, and future financial results are forward-looking statements. Actual events and results could of course differ materially. I refer you to the statement of Risk Factors in our Annual Report on Form 10-K for the year ending December 31, 2009, and to our press release. These documents identify important factors that could cause such a variance.

Our remarks will also include certain non-GAAP measures of financial performance. Please refer to our press release, which is available on the company’s website at the Press Room page for a discussion of any non-GAAP measures. During the course of the call, we will take questions from participants. Under SEC rules, we cannot provide material information in subsequent private settings, but we will continue this public call as needed to respond to appropriate questions.

We will begin today’s call with a review of the financial results from our Chief Financial Officer, Gary Shell. Gary, over to you.

Gary Shell

Thanks Neil. Well, as reported this morning, we had revenues in the second quarter of this year of $88.5 million, and net earnings of $4.2 million or $0.28 a share one non-GAAP reporting basis excluding acquisition related items. These results were a sharp improvement over the first quarter of this year, when we reported revenues of $82.9 million, and net earnings of $1 million, or $0.07 a share also on a non-GAAP basis.

EBITDA, adjusted to exclude acquisition items increased to $11.1 million in the second quarter from $7.3 million in the first quarter. The growth in Q2 revenues over Q1 was due to renewed activity in LXE markets, especially North America. In the year over year comparison, LXE’s Q2 revenues were also higher, but this benefit to the company’s top line was more than offset by decreases in aviation revenue levels that began with the market slowdown in the second half of ’09, and in defense revenues after a major program was completed late last year.

The real story, the improved profitability from Q1 to Q2 this year was the result of strong execution and cost reductions throughout the company, and a more favorable product mix, including healthy order intake from military aviation and Global Tracking markets. In the year-over-year comparison, consolidated operating income and adjusted EBITDA were both higher as a percentage of revenues in 2010 versus 2009. Better execution, lower cost, more favorable product mix, all helped LXE, and our Defense & Space businesses earned higher operating profits as a percentage of sales.

Aviation’s profitability predictably decreased with the lower revenues of 2010 compared with 2009. SG&A was comparable with the first quarter, but lower than the 2009 level. This improvement reflects the benefit of our ongoing plan to achieve cost reductions throughout the company. R&D spend was generally comparable with the recent previous quarters, although slightly less than the first quarter as certain product related initiatives neared completion. All of our businesses have plans to increase their efforts on specific new product developments, and as a result we expect the quarterly R&D spend to increase in the second half of the year and be around the 7% of revenue level.

Turning briefly to the balance sheet, the company’s cash level decreased $9 million during the quarter to approximately $45 million, mainly due to 2 significant cash outlays that totaled $16 million. The first was the payment of a previously announced settlement of arbitration related to discontinued operations, and the second was payment of an earn out for one of our 2009 acquisitions. We also used about $1 million net cash from operations in the second quarter due to growth in receivables and inventories associated with the jump in revenues in Q2. As a result, our debt at the end of the second-quarter increased $11 million to approximately $39 million.

However, cash flow from ops following the close of the quarter has already allowed us to pay the debt back down by some $5 million. Total debt still represents leverage of well less than one times annualized adjusted EBITDA, and our financial position remains very strong.

Those conclude my comments on the Q2 financials.

Neil Mackay

Thank you Gary. The second-quarter performance marked a major step forward in our strategy to bring what we call a new EMS. As I told you when I first started this job late last year, one of the main elements of our plan for a new EMS was to improve our profitability, especially at our legacy businesses, LXE and Defense & Space.

And this quarter’s results show that the plan is starting to work. LXE earned its highest profit since 2007, while Defense & Space achieved operating profit of 10% of sales. The question is of course, how did we do this. Well, first, we lowered the cost structure across the company, and we started by simplifying and rationalizing those businesses with multiple locations. For example, we consolidated LXE’s European sales and administrative offices. We reintegrated the legacy search and rescue business with Global Tracking.

And now we are consolidating facilities and administrative functions in the newly formed aviation group. The second part of our plan, and one with a much longer focus and payoff is to promote more collaboration across the company, wherever our businesses have customers in common, and wherever our products can be combined to create new solutions.

This collaboration leads customers to think about EMS in a different way, as a bigger, more complete player in the market place. We believe some of these opportunities will turn into real orders in the second half of the year. Even though our long-term focus is one EMS, it is of course so important to talk about the past.

I want to start with LXE, because LXE made the biggest improvement of any part of our business. As we said in our earnings release, we shipped more mobile computers this quarter than any other quarter in our history. We produced our highest profit from LXE since 2007. All of this points to an encouraging second half of 2010, and my optimism rests on three factors. First, we have momentum with customers planning major infrastructure rollouts this year. Second, we are launching an innovative new and mobile computer that we believe will help us move beyond the warehouse. And third, our change in distribution strategy is showing promising results.

But I do have a word of caution. Supply chain problems in the industry are real, and even though now we are coping with past delays and shortages the problems still continue to be real and they could affect our business in the second half. I like to talk now about Global Tracking, what may be our most dynamic market. The biggest reason this market is so dynamic is the absolute mission [ph] to tracking everyone and everything, especially in high-risk places in the world. We now have considerably more than 100,000 terminals in the field, and the revenues don’t end with the hardware sale. These terminals have continued to generate a larger reliable stream of service revenues, and going forward there will be sales and service revenues for the new Osprey Personal Tracker.

We are now shipping the first units, following a successful beta trial, and we have already received orders totaling over $1 million, and have teaming agreements with several large OEMs to address impending military and commercial opportunities.

Next I want to say that I am really pleased with the performance of our Defense & Space business. Defense & Space profits increased to 10% of sales, which is a milestone that has only occurred six times since 1998. Something very different is happening with EMS in this business. Defense & Space is successfully executing a new strategy. We shifted our focus three quarters ago to production opportunity, and now fully two thirds of our backlog relates to production work.

We believe this strategy also aligns with the new reality in the Defense & Space industry. What is that new reality? We believe there is a growing urgency for short lead times and rapid deployment. We are aligning with this new reality by emphasizing a product based approach. We have already developed some off-the-shelf products, and we’re productizing other capabilities. As Gary said, the demands of this new approach are a big reason for our plan to increase the R&D spend in the second half of 2010.

Moving now to our aviation business, our improved second quarter results were driven by strong sales to the military market. Our Inmarsat SwiftBroadband capability fills the need for fast data rate systems and that can be used almost anywhere in the world. This capability is important for surveillance and for communication with senior leaders, and we had several Q2 orders for this application.

On the commercial side of aviation though, as we have said before, the current market is still slow. This affects satcom connectivity for long haul aircraft, as well as air to ground connectivity for US airlines. But we are still comfortable holding our long-term view that points to a recovery. Actually, when I was at the Farnborough Airshow just last week, I was very encouraged by the robust orders that were announced for the new aircraft and by the general mood of optimism over there.

So in summary I am very pleased with our second quarter results and efforts of everyone at EMS. We have controlled cost, and we have executed well in a tough environment. With an improving economic outlook, I remain bullish on our long-term business prospects. As for the outlook for the year 2010, excluding acquisition related charges, and assuming an effective tax rate of 15%, we reiterate our 2010 guidance range of $0.75 to $0.90 a share.

We are now happy to take your questions. Anthony over to you.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Richard Valera from Needham. Sir, you may ask your question.

Richard Valera – Needham & Company

Thank you. Good morning gentlemen. Very nice margins across the board this quarter, and just wanted to get your sense of the sustainability of those margins, I know you referenced favorable product mix as being one of the elements there, do we think that mix is likely to shift back towards the older mix, or do we think that mix is more than likely going to stay at this type of mix, and you know just general commentary on the sustainability of those margins would be helpful? Thank you.

Gary Shell

Rich, this is Gary. I think our plans show that that kind of mix is sustainable, that kind of margin should be indicative of where we are expecting to go. The mix issues typically relate to older legacy products, or build-to-print kind of work that we sort of have some ongoing work that can go up or down and change things a bit. But the latest generation of products, what we’re marketing, this kind of margin across-the-board should be sustainable.

Richard Valera – Needham & Company

Okay. That is helpful. And then, clearly like to get more color on one, a very challenging third-quarter means, if you could give us any kind of qualitative or quantitative commentary around that and specifically which segments do you think will be the most challenged, and if you think there are any segments that could be sort of flat to up sequentially, and which ones might be down sequentially?

Neil Mackay

Well, there are always balls we are juggling. I said, Rich, there seems to be four balls we are constantly juggling. Foreign exchange is one, and that impacts on LXE and our aviation business on the one hand. Supply chain we’re having some issues there because that piece of the market is expanding very rapidly. I’m giving you the negatives first, the airline industry, timing of some of that, and those very large military orders. So, I think we are in a good position from a point of view of long-term we are really in a good position. There are some timing issues that I think Gary, you want to add to that?

Gary Shell

I think that is it Rich, and with those risk areas that Neil has mentioned, we have generally very profitable products as of course the results show, and more or less a heavily back-end loaded sales pattern in the quarter. So those risk things affect the timing basically of orders and how they come in, and a shift of a little bit of orders just a few days or a few weeks can make a measurable difference on the quarter. So that is our reason for caution in those areas.

Richard Valera – Needham & Company

Okay, and just reading between the lines of your commentary, is it fair to say that Defense & Space is one area where you are concerned about the timing of orders, or are those defense orders really in the aviation area?

Gary Shell

It is more in the aviation. The defense orders, we have a good backlog in defense. The timing issues are more in the aviation side I would say.

Neil Mackay

Defense & Space and global tracking are two areas where we should have pretty good opportunity for some sequential growth there. Those risk areas that we mentioned really apply to the aviation group and the LXE group.

Richard Valera – Needham & Company

Okay, that is helpful color. And just looking at the bigger picture guidance number, I know you have really only been giving EPS, but there has been talk around some other metrics, I think last quarter, a high $300 million type of annual number was referenced, if not explicitly given, I’m wondering if that number is still the operative type of range, or if something closer to the mid-350s might be more appropriate in light of the expected potential weakness in the third quarter?

Neil Mackay

No, I think the number that you are talking about, it is somewhere between that probably. I think the mid-350 is a little bit low, and closer to 400 is too high. So you have to – we can’t give too much specific guidance there. That is not an area we have given specific information on, but I think something in the – as we kind of implied last time is more appropriate.

Richard Valera – Needham & Company

Okay, that is helpful color. Thank you gentlemen.

Operator

Our next question comes from Michael Ciarmoli from Boenning & Scattergood. Sir, you may ask your question.

Michael Ciarmoli – Boenning & Scattergood

Hi, good morning guys. Thanks for taking my questions. Nice quarter. I guess Neil, can you just help me understand in the airline connectivity market on the commercial side, you know, you have got Row 44 and Aircell making a lot of noise. You have obviously got content with Aircell. There is more talk now that Ka-band could be the right fit for commercial connectivity moving forward. There has been some discussion that, you know, I guess capabilities that Aircell can offer, you are not going to get that real rich broadband capability. You know, how well are you positioned on the potential Ka-band side to play in that space, as the market might migrate to that protocol?

Neil Mackay

Michael, we feel we are very well positioned for Ka-band there, we [ph] at the moment. But I think you have hit the nail on the head, the Aircell has a very good product, particularly from mid-range broadband. And the cost per bit right now in the US really also plays [ph]. It is a good proposition.

Ka-band is still several years away, and there is a lot to be done for that. The rollout of the entire network and so on, but there are a couple of players, who are playing there, and the airlines are getting very excited about it as are some of our partners at Farnborough Airshow with a buzz with Ka-band. But you shouldn’t think it is going to happen right now, but it will be in the mix I would say in three years time.

Michael Ciarmoli – Boenning & Scattergood

Okay, fair enough. And then can you just, I guess, last year even a while back you guys were talking pretty aggressively about the opportunity with Panasonic. I haven’t heard much, what is happening with that program right now?

Neil Mackay

Well, it is rolling out slowly I believe. It is best if you talk to them about it. They are playing in the long-range international routes particularly. So, as that plays out, you will see them there. So, we’re participating in that program as well. But we are not the prime on it, I think it would be better if you ask Panasonic on those particular things.

Michael Ciarmoli – Boenning & Scattergood

Okay, fair enough. And then just on the defense side, you know, I know the question was asked about margin sustainability, is this 10% range kind of the norm in the defense space and then, just if you can help us understand maybe the pipeline of opportunities, sort of what programs, or what kind of spaces within the DoD landscape you are looking at, and where you are seeing the opportunities?

Neil Mackay

Well, it is a wide range. 10% is closer to where the norms are. In fact, it will be above 10%. We are pushing to get I think about 10% on the defense side.

Michael Ciarmoli – Boenning & Scattergood

Okay.

Neil Mackay

To do that you really have to have more product based programs. If you are just doing development programs, you’ll never get there on a sustainable basis. So, we have shifted a lot of our stuff to ensuring that, as you have longer production runs your quality improves, your learning curves improve, and your profitability goes up. There are a number of programs that we are working on now. We got a very good position on the radar [ph], for instance, and we have some interesting programs that we are bidding on right now, and we expect to have some answers about later on.

Michael Ciarmoli – Boenning & Scattergood

Okay, great. Thanks guys. I will jump back in the queue.

Operator

Our next question comes from Chris Quilty from R. James & Associates. Sir, you may ask your question.

Chris Quilty – Raymond James & Associates

Good morning gentlemen. A follow up on that question regarding L-band, Ku, Ka-band, it sounds like most of your military strength in the aviation business, the ISR orders you were indicating, I think were on the L-band side, is that correct?

Neil Mackay

That would be correct Chris. It applies for those ISR applications, where the platforms have to go anywhere in the world, opposed that are stationed in a particular theater.

Chris Quilty – Raymond James & Associates

Got you, so…

Neil Mackay

But we do have work going on in Ku-band, and we expect to do more in the future.

Chris Quilty – Raymond James & Associates

Okay, and what would you consider to be the key competitive metric in a Ku-band solution relative to forward link, return link, coverage area, what is going to get you into the market that already has several participants.

Neil Mackay

Well, we have certain technologies on the antenna side that we feel are really important. I would say probably 80% of the ISR data flows through Ku-band at the moment. They are players in that area, but generally form factor, G/T and EIRP, some of that stuff is important as well. And there are a number of platforms that we feel our particular technology will be appropriate fiscal for. It is not just the bandwidth, it is often the real estate on the aircraft that matters as well.

Chris Quilty – Raymond James & Associates

Okay. Shifting gears on the LXE business, the strength in the North American orders, can you characterize how much of that was sort of recurring, the replacement business with existing customers versus new customer wins?

Neil Mackay

Actually, we have two sides to that here, and I don’t know if I can give you the exact answers. We do have a lot of very loyal customers that have been starting to upgrade now as well. And some of that have been in limbo for several years that of a sudden have started to see that they need to upgrade their systems. So, some current customers plus some that were sitting on the sidelines for many years. But we have found some new customers as well that turned up in the last as well. Gary, you can add to that.

Gary Shell

I think Chris, our biggest orders though were – have been from long-term customers, who are beefing up their rollouts again.

Chris Quilty – Raymond James & Associates

Okay. And would you characterize, now that you have more of an indirect distribution model, are more of these orders going through sort of the onesie-twosie type of sales or are you still seeing the preponderance of your orders coming for large enterprise deployments, which is what you – the type of business mix you have traditionally focused on?

Neil Mackay

It is a bit tricky to characterize it, Chris, in that a lot of our shipments, whether they are in the rollouts or upgrades or repairs, a lot of our shipments are in relatively small quantities. We don’t usually ship mega quantities of anything, anymore even when it is going to our long-time customers. So, from that standpoint that is not necessarily a differentiator. What we do see us, and we have to kind of gear our operations to respond to a fairly high level of orders of smaller quantity.

Chris Quilty – Raymond James & Associates

Okay, fair enough. And final question here on the global tracking business, you have got a number of different devices, networks and end markets that you service, are there any – is there a single market or opportunity that you think is particularly interesting in the year ahead?

Neil Mackay

I think non-US markets are probably where you want to – where we spend most of our time. In terms of regions, it is in the areas where there is no connectivity infrastructure, in the Middle East and Brazil, a lot of the Third World. And the applications tend to be – the new applications tend to be very security related, both personal as well as vehicle logistics as well.

Chris Quilty – Raymond James & Associates

Fair enough. Thank you.

Operator

Our next question comes from Mark Jordan from Noble Financial. Sir, you may ask your question.

Mark Jordan – Noble Financial

Yes, good morning gentlemen. A question relative to the guidance, clearly a very positive and strong second quarter, it sounds like some of your concern on the third quarter is more timing rather than sort of the expected business, I’m curious as to why you didn’t feel comfortable in upping the bottom end of your guidance range, or putting it another way, what are the areas that still cause you some incremental concern that keeps the bottom end at $0.75?

Neil Mackay

Hi, Mark, I think it goes back to the same thing. You are absolutely right, I think the biggest factor would be the potential shift from Q3 to Q4, but again we look Q4 is historically, that earnings pattern is our largest quarter, and again, like the other quarters, it does tend to be back end loaded. We are mainly a product shift business now, and so that is the issue there. In the current sort of market, the scheme of things, a shift of a few days or a few weeks can make a real difference even in the fourth quarter.

That is our caution. I think as we get some more visibility, as we get into the third quarter, we get some more visibility, we very well could be considering some revision of the guidance as you have discussed, but we need to get some more visibility over that.

Mark Jordan – Noble Financial

Okay. Second question in the Defense & Space area, fourth quarter – first and second quarters were in the $16 million plus run rate, as you mentioned you really refocused on marketing there, towards more production type business. When should we start to see that group grow and kind of break out of that revenue range of the $16 million plus on a quarterly basis, and start to show some sustainable growth pattern?

Neil Mackay

Well, there is always a delay on the defense side, and when you get an order, the gestation period from turning the order into revenue still could be six months to a year, but I think if you see good orders coming in later on this year, I think we are on the right track.

Mark Jordan – Noble Financial

Okay. Question relative to M&A, obviously the company was very aggressive a year or so ago, you are now seemingly in the later stages of cost-cutting and consolidation and rationalization, when might M&A start to play a meaningful role for you, or when will you get back into the market to look for businesses that would be complementary to your current portfolio. Is this something that is a 2011 issue, or could we see something here this year?

Neil Mackay

Mark, I think we are unlikely to see anything this year, although we have never stopped working our pipeline of opportunities for things that might fit. And I think a lot of it has to do with all kinds of circumstances as you can imagine what the expectations are on value, what our willingness to pay is, we are wanting to be cautious about what we take on in this area so that we make sure that we don’t have any dilution.

So we never stop working the pipeline, but I think it is probably less likely this year that something will happen this year.

Mark Jordan – Noble Financial

Okay. Final question, relative to some of the commercial airline connectivity rollouts that you are involved in, is there a couple of catalysts that you are looking at or looking for as might be signals that that market will become reinvigorated.

Neil Mackay

Well, if you are referring to the Aircell orders, it is probably what you are referring to Mark?

Mark Jordan – Noble Financial

Yes.

Neil Mackay

Yes.

Mark Jordan – Noble Financial

Yes.

Neil Mackay

The other side of Aircell that we should keep in mind is that they have just announced, as you may have seen that they are going heavily into the business jet market. So that is opening up a new area for us as well. I think we are being guided by where the airline industry in the US is right now, there is mergers and consolidation going on now, so we are cautious about whether that is going to blow out this year or not. I think there is some water under the bridge that has to happen I think.

Mark Jordan – Noble Financial

Okay. Thank you very much.

Operator

Our next question comes from John Powers from Millbrook Capital. Sir, you may ask your question.

John Powers – Millbrook Capital

Good morning. Thank you for taking my questions. Could you talk a little bit in a little more detail about what happened at Farnborough, I know there were a lot of aircraft orders, could you talk about what specifically was said regarding communications and data orders?

Neil Mackay

Well, it was more about the number of planes being ordered than about the connectivity side of it John, and what seems to be happening is the long-range aircraft, there is a lot of orders now for both Boeing and Airbus for long-range and medium-range aircraft as well, and the regionals are a little bit slow from what I can see, and the business jet business is apparently doing better for the high-end aircraft, and not so well for the low-end aircraft, but as far as the connectivity side of it, there wasn’t any direct announcement on that. Those tend to follow, those are small numbers compared to the billions of dollars for a new aircraft. Is that helping?

John Powers – Millbrook Capital

Yes, sure. I appreciate that. On D&S, you know, you talk about some of the progress that you have made and specifically with the off-the-shelf products, the off-the-shelf model that you are moving to, can you qualify for us may be a percentage of sales, or the dollar volume of off-the-shelf products in the quarter?

Gary Shell

Well, going from our backlog, more than half of our backlog now is on production type of opportunities, so as you look forward you will see that our revenues will start trending that way.

Neil Mackay

John, in the true off-the-shelf and the classic sense though, it is still a fairly small percentage of what they are doing, sub 10%. They have some, it is more in the – more of what their revenues are coming are in production jobs, and in the production phases, where they have settled on the – they have settled into now a routine of manufacturing, and they get some learning curve, some improvement, some efficiencies there. But they are working more towards productizing some of these capabilities so that it can be more of a quick plug-in situation to fill a need.

John Powers – Millbrook Capital

Okay. Do you guys have a long term target for maybe what percentage of sales these off-the-shelf products could be long-term?

Neil Mackay

Well, I’m more interested in products that are production based. If we get an order for something, I like to feel that we’re making hundreds of them rather than just doing 10s of them. So, as Gary said, it is not exactly off-the-shelf per se, but they are close to production, and perhaps on order. I’m not sure of that topic.

John Powers – Millbrook Capital

Great. Thank you. And lastly on LXE, could you talk a little bit about your pipeline for out of the warehouse products?

Neil Mackay

Well, that is just started as you know, our first out of the warehouse product was MX9, but we are now launching three new products this year. So, we will expect to see more out of the warehouse revenues as the second half unfolds.

John Powers – Millbrook Capital

Okay, thank you.

Operator

Our next question comes from Michael Ciarmoli from Boenning & Scattergood. Sir, you may ask your question.

Michael Ciarmoli – Boenning & Scattergood

Yes, thanks guys. Just a follow up on Aircell penetrating into the business jet market, you know, you have got Aircell, your dollar content there is obviously lower, and I’m assuming your margin as well, how do you guys balance out the relationship with Aircell versus your EMS branded product, or even some of your other relationships with some of the other avionics providers, where you might want to be trying to push the satellite connectivity into the market place to generate higher revenues and higher margins.

Neil Mackay

Well, as you know, we have several channels to market, and beside Aircell, we have got Honeywell, Collins, and Callus [ph] and some others beyond that. And a good piece of the aviation business actually goes through those partner networks. The amount we do on our own is fairly small. We tend to handle the early adopter folks rather than the large volumes of the people.

So we really want to encourage all our partners to do very well, and they are attacking different markets. Aircell is largely providing broadband in the US. A lot of our satcom stuff is providing [ph] broadband around the world. And our Iridium products are providing very low data rate tracking sort of stuff. So, there are different markets, so we help our partners handle all of those.

Michael Ciarmoli – Boenning & Scattergood

Okay, fair enough. Thanks guys.

Operator

Our next question comes from Bob Jackson [ph], a private investor. Sir, you may ask your question.

Bob Jackson

Good morning. Congratulations on the quarter, great cost reductions and you have managed through a very difficult time, and it is good to see markets recovering. My question goes back a number of questions have been asked in the Defense & Space sector, and I’m just trying, as an investor I’m trying to understand what is the – if there is any kind of customer concentration, any outsized orders, for instance, there was the $5 million radar deal with Raytheon, is there any chance of a runoff of a program and what is the opportunity with – like what is the largest type of ad you could possibly, you know, what size of a large military order, what is large for you, and just one more question like, what is an average size of an order?

Neil Mackay

Okay. We have two ways to address the military, Bob. One is our off-the-shelf products in aviation, the military buys it, puts it on a aircraft, and puts applications around that. And we have program based military sales, which we get through our OEMs, L3, Northrop Grumman, Lockheed Martin, and so on. The off-the-shelf stuff tends to be in the hundreds of Ks to maybe one or two million. On the program types, they tend to be several million, maybe 5 million to 10 million. So, depending on – the long-range stuff tends to be much larger amounts than the off-the-shelf programs.

Gary Shell

I think in terms of customer concentrations, we have talked about this before, we really don’t have any one customer that is dominant. We do deal with all the major primes [ph]. I think the key issue for us is typically as we have mentioned before, we – the service we are providing to them, the reasons the primes come to us is because we represent an opportunity – with our expertise we represent an opportunity to help them reduce program risk and schedule risk.

We can do it better and deliver it faster than they can on their own, and we have found that in some of these relationships, we have had some of these relationships for quite a long time, and we are working with them even now, trying to look at better ways to produce volumes and more effective quantities that kind of thing. So, we do have good relationships with those primes, as well as talking to the end users. We do make a point to talk to the actual people who are using our military equipment.

Bob Jackson

Okay. Just to continue one – to clarify a little more, with that radar deal with Raytheon, the $5.4 million, is that a large order, and in the military programs, what is the DoD now, what are the large programs, I mean is it something like the F-35 that you are bidding on, is it what type of Lockheed or Boeing programs through the DoD could be potentially huge for you in the same [ph] and commercial space communications?

Gary Shell

Well, I think regarding just the size of orders again, I think Neil has characterized it pretty well, and several million, we are always going after it. That is significant. It is going to make us flush, but that would not make it a dominant order that is going to focus on a lot of unique energies of the company.

I think regarding programs that is one of the key things I think we are looking – what we have looked at more as Neil has referred to, we’re focusing more on capabilities rather than on programs. Now there are some out there, but we think our capabilities and being able to plus those into some of these opportunities is more the focus that we are looking at. We are not specifically tied to – I couldn’t give you a list of very specific big programs that we’ve hinged a lot of our future on.

It is more in the various capabilities that we think we can plug in to provide some risk reduction or schedule risk reduction for these primes.

Neil Mackay

But maybe Bob, I will add, what happens is you don’t get a major order for say $50 million, but there is a program where if you look at it over a period of time, it might add up to large numbers like that, but we would get an order for $5 million now, and then another $5 million in the year from now or so on. So that tends to be the way the military programs work.

Bob Jackson

Thank you. Hey, one last question, a competitor Comtech, I follow that along with EMS, they lost some big Navy contract, I mean is that something you could possibly be on or get part of it, or do you know about that or care about it.

Neil Mackay

Yes, we know about that very well. We actually have a version of that in Afghanistan, where we are providing tracking for the troops. I really can’t speak about Comtech specifically, but we do have activities of that area, but not exactly in the area in which Comtech was.

Bob Jackson

Okay, thank you very much.

Operator

Our next question comes from John Powers from Millbrook Capital. Sir, you may ask your question.

John Powers – Millbrook Capital

Hi, thanks. I wanted to follow up on one of the earlier questions about the EPS guidance, and considering the particularly strong second quarter, why the range hasn’t been tightened or perhaps increased, I mean can you talk about some of the second half troubles you mentioned with respect to push outs or the supply chain worsening, which of those are soft of new with respect to the second half compared to how you were thinking about the second half prior to this quarter?

Neil Mackay

John, I think those risks are still fairly consistent. That is why we are reiterating the guidance. That has always been out there, particularly in those areas, and I don’t think there is anything particularly new. We’re just wanting to point that out. We did have a very good quarter this quarter, and we had good success in all of our ventures. But those risks are out there, and that is what we are trying to indicate. Does that mean that we are going to be able to coast in, there is lots of work to be done and there are some risks out there.

John Powers – Millbrook Capital

Okay. So, these are the same risks as your outlook for the second half hasn’t worsened really?

Neil Mackay

No. It is the same risk that has always been there.

John Powers – Millbrook Capital

Okay, and on the aviation segment, we had seen that there was some talk of Aircell perhaps having to do an antenna redesign, is that something that you know you guys could talk about or potentially participate in?

Neil Mackay

No, we can’t talk about that at this stage. I’m not sure that they actually do need a major redesign. They might need a minor design, but we can’t talk about that.

John Powers – Millbrook Capital

Okay. Thank you.

Operator

At this time, there appear to be no further questions.

Neil Mackay

Okay, but thank you very much Anthony, and thank you all for joining us on this call, and we look forward to talking with you again after the end of the next quarter. Thank you very much.

Operator

Thank you. This does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.

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